TERRAFORMING TERRA
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Thursday, December 15, 2011

Fog in Channel, EU Cut Off

This item attempts to generate
some sense in the present EU financial crisis and makes some quite good points.

My own thinking has evolved on
this subject and I am now a proponent of the devolution of central banking
authority and regulation.This idea runs
counter to apparent common sense but nicely blocks what has practically
happened in which a large entity distances itself from affairs isolated to a
small subgroup.Thus Germany and France
and England can all go stick their heads in the sand while Ireland, Iceland and
Greece slowly run amok and ultimately crash and burn.

I have already argued for devolution
in the USA
to State Banks in particular under the oversight of the state legislatures.This sets up a virtuous circle of influence
and mutual supports that makes speculation all but impossible and size itself
ceases to be an issue.The best North
American examples are North Dakota and Alberta.

Also let us not confuse this with
the devolution of the tariff union and other common elements of EU unity.It is nothing of the kind.In fact those other factors are best handled
under a common umbrella.What I am
saying is that a vibrant financial market is only possible if it is broken into
many fairly equal players working on a level playing field.Supersize any part of it and the elephant
naturally dictates its entitlements until the market collapses under its
failures.

This is precisely what occurred in
the USA
with the sub prime scandal and the too big to fail mantra.They are perhaps too big to fail, but they
are never too big to be chopped into little bits.

"Helmut Schlesinger, the Bundesbank president in 1992, was asked why he
disliked the precursor of the Euro, which was called the Ecu. He
replied, "I have nothing against the Ecu apart from its name -
I think it should be called the Deutschemark."

So the UK
doesn't get to join the great euro zone leper colony. Oh well. Tant pis. Tja.
As Captain Blackadder once said, we lost closer friends the last
time we were deloused, and were more wounded the last time we
clipped our toenails. If we could summon up the mental energy to
care about Europe we might bother
to cite the perhaps apocryphal British newspaper headline that once
read:

"Fog in Channel; Continent cut off."

As regular readers will attest, we have long approvingly cited the work
of Albert Bartlett, emeritus Professor of Physics at the University of Colorado
at Boulder.
Professor Bartlett regards sustainable growth as a contradiction in
terms, and has voiced at least two startling opinions on the
topic:

"The greatest shortcoming of the human race is our inability to
understand the exponential function."

And he has asked,

"Can you think of any problem in any area of human endeavour on
any scale, from microscopic to global, whose long-term solution is
in any demonstrable way aided, assisted or advanced by
further increases in population locally, nationally or
globally?"

Such views are unfashionable, of course (although some have referred to
them as fashionably declinist) - we are somehow meant to believe
that perpetual growth is not just desirable but essential, and that
the planet can cope with an infinite number of people despite its obviously
finite resources.

The problem with the perpetual growth fantasy is that when the world
has accumulated so much debt that its major economies are incapable
of growing even at a rate sufficient to service that debt, not only
does the growth dynamic run into reverse, but the debt deflation dynamic
ensures protracted and painful economic contraction.

Whatever insecure Gallic dwarfs or intransigent Teutonic socialists
might think, size - in politics or common currency blocs - is not automatically
a good thing. More to the point, as JP Morgan?s Michael Cembalest
points out (hat tip to M. Arnaud Gandon), there is disturbingly
little "commonality" amongst the disparate cultures that make
up what we used to call the European common market.

The chart below shows DNA mappings of European citizens (courtesy of
"Correlation between genetic and geographic structure in Europe?" Current
Biology Magazine, August 2008). While genetic variations were relatively small,
those variations were tied very closely to geography.

As Mr Cembalest points out, by grouping similar DNA results
together, we get something that looks very much like a map of Europe - a map
that reflects "hundreds of years of migration, weddings,
funerals, births, language, values passed to children, circumstances
that call for charity, sacrifice, revenge and everything else that define 'culture'."

###

Source: JP Morgan Chase & Co.

In Cembalest's words, "The map shows clear patterns of ancestry tied to
geography, which is perhaps why the EMU was designed to retain the
region's fiscal, economic and cultural identities. Perhaps we should not
be surprised that Northern Europe is
struggling with whether it will mortgage its future to save the
South."

Cembalest asks, crucially, whether the "will" is even there. "In
terms of shared experiences and values measured by anthropologists,
and the contours of history implied by genetic research, they may not have
enough in common. It took almost 150 years for the US to reach the same point
in its history, when it began to cede more control to a Federal,
centralized government."

Another avowed euro sceptic, before the fact, was Leopold Kohr. Kohr was an
Austrian Jew who only narrowly escaped from Hitler's Germany just
before the war. The village in which he was born, Oberndorf in
central Austria, with a population of just 2,000 or so, would - in its lack of
size - come to play a crucial role in Kohr?s thinking.

Kohr graduated in 1928 and went off to study at the LSE with
the likes of fellow Austrian thinker Friedrich von Hayek. In 1938 he decided to
leave Europe for America,
and despite being told it would take two years to get the
appropriate documentation and book a passage, managed the feat
within a week.

He would make North America
his home for the next 25 years.

In September 1941 Kohr wrote the first part of what would become his
masterwork, "The Breakdown of Nations", arguing that
Europe should be "cantonized" back into the sort of
small political regions that had existed in the past and that still
persisted in places like Switzerland. "We have ridiculed the
many little states," he wrote sadly, "now we are terrorized by their
few successors."

The essence of "The Breakdown of Nations" is the problem of scale.
Size matters. As Kirkpatrick Sale writes in his foreword to the
book,

"What matters in the affairs of a nation, just as in the affairs of a
building, say, is the size of the unit. A building is too big when
it can no longer provide its dwellers with the services they
expect -running water, waste disposal, heat, electricity, elevators,
and the like- without these taking up so much room that there is not
enough left over for living space, a phenomenon that actually begins
to happen in a building over about ninety or a hundred floors.

A nation becomes too big when it can no longer provide its citizens
with the services they expect -defense, roads, post, health, coins,
courts and the like- without amassing such complicated institutions
and bureaucracies that they actually end up preventing the very ends
they are attempting to achieve, a phenomenon that is now commonplace
in the modern industrialized world.

It is not the character of the building or the nation that matters,
nor is it the virtue of the agents or leaders that matters, but
rather the size of the unit: even saints asked to administer a building of 400
floors or a nation of 200 million people would find the job
impossible."

Kohr shows that there are unavoidable limits to the growth of societies. As he
puts it, "social problems have the unfortunate tendency to grow at a
geometric ratio with the growth of an organism of which they are a part,
while the ability of man to cope with them, if it can be extended at
all, grows only at an arithmetic ratio."

In the real world, there are finite limits beyond which it does not make sense
to grow. Kohr argues that only small states can have true democracies,
because only in small states can the citizen have some direct influence
over the governing authorities.

When asked what had most influenced his political and social ideas,
Kohr replied:

"Mostly that I was born in a small village."

The euro zone is an object lesson in an unwieldy, oversized political construct
haphazardly cobbled together amongst irreconcilable cultural
entities. Wherever something is wrong, wrote Kohr, something is too
big.

The answer is not to grow, embracing ever more disparate states within a
dysfunctional currency union with make-it-up-as-you-go-along rules. The answer
is to stop growing.

The euro zone economy will have
ample opportunity to learn that lesson in the coming months and
years.

The answer to the "too big" problem lies not in ever-greater
union, but in division. And if the larger states in Europe
ultimately decide that the political union is more than their
societies can bear and that what they really want, yet again, is to slaughter
each other, they should not expect Britain to wade in to the abattoir
and join them.

French officials apparently described Prime Minister David Cameron's efforts to
protect Britain's national
interests during last week's talks as "like a man who wants to go to a
wife-swapping party without taking his own wife." Nice image,
that doesn't at all play to the stereotype that all Frenchmen are
untrustworthy Lotharios.

That should go down well with the female members of the euro zone
electorate. As "The Sun" once tastefully put it, Up Yours, Delors.

Tim Price

Director of Investment

PFP Wealth Management

-------------------------------------------------

Tim Price is Director of Investment at PFP Wealth Management in the UK.
PFP is an independent wealth management partnership with over 20 years' experience of institutional and private client investment management. Tim is a specialist in low risk, multi-asset, absolute return investing and has enjoyed success in the UK Private Asset Managers Awards programme, having been shortlisted for five successive years, and was a winner in 2005 in the category of Defensive Investment Performance. He was also shortlisted in the 2007 Spear's Wealth Management Awards in the category of Asset Manager of the Year. He is a regular contributor to Money Week magazine in the UK and to other financial media.

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Apr 2017 - 4.1 Mil Pg Views, March 2013 - Posted my paper introducing CLOUD COSMOLOGY & NEUTRAL NEUTRINO rigorously described, September 2010 I am pleased to report that my essay titled A NEW METRIC WITH APPLICATIONS TO PHYSICS AND SOLVING CERTAIN HIGHER ORDERED DIFFERENTIAL EQUATIONS' has been published in Physics Essays(AIP) and appeared in their June 2010 quarterly. 40 years ago I took an honors degree in applied mathematics from the University of Waterloo. My interest was Relativity and my last year there saw me complete a 900 level course under Hanno Rund on his work in relativity,as well as differential geometry(pure math) and of course analysis. I continued researching new ideas and knowledge since that time and I have prepared a book for publication titled Paradigms Shift&. I maintain my blog as a day book and research tool to retain data and record impressions and interpretations on material read. Do join my blog and receive Four items of interest daily Monday through Saturday.